Auditing and Assurance Services (16th Edition)
Auditing and Assurance Services (16th Edition)
16th Edition
ISBN: 9780134065823
Author: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan
Publisher: PEARSON
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Chapter 15, Problem 20RQ
To determine

Explain the concept of statistical results in terms of auditing.

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Identify the factors an auditor uses to decide the appropriateARO. Compare the sample size for an ARO of 10% with that of 5%, all other factorsbeing equal.
Evaluating Results: Classical Variables Sampling. Kyle Berry is using mean-per-unit estimation in the audit of Leonard’s inventory balances. Leonard’s inventory is recorded at $240,000 and comprises 1,200 different items. Berry determined a sample size of 120 items and performed the appropriate substantive procedures. Based on this sample, he determined the following: Average audited value (per item) $204 Standard deviation of audited values $ 22 A summary of some additional parameters estimated by Berry follow: Tolerable misstatement $ 17,500 Expected misstatement $ 7,500 Risk of incorrect acceptance 5% Risk of incorrect rejection 10%     Required:a. What is Berry’s estimate of the audited value of Leonard’s inventory?b. Calculate the precision and precision interval for Leonard’s inventory. Provide a briefdescription of the meaning of the precision interval.c. What is Berry’s conclusion with respect to Leonard’s inventory balance?d. Using a risk of incorrect…
. STATEMENT 1: Random sampling is a selection method that aims to eliminate bias in the selection process. STATEMENT 2: Assume that the auditor wants to examine 50 sales invoice (sample size) from a population of 2000 sales invoice, the sampling interval using haphazard selection is 40 (2,000/50). A. Only Statement 1 is incorrect B. Only Statement 1 is correct C. Both statements are incorrect D. Both statements are correct
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